FDIC chairman Sheila Bair doesn't think a full government takeover of Citigroup and other multinational financial institutions is practical or even possible. Here are her reasons, as summarized by Pete Davis:
1. The legal authority to take over large banks does not currently extend to multinational financial conglomerates;
2. The FDIC lacks the funding to conduct such a massive bailout;
3. Other countries have regulatory oversight of these financial conglomerates too, and they may object to a U.S. takeover.
This made me curious as to how much of Citigroup was a domestic commercial bank that the FDIC could take over ... Citigroup has liabilities of $1.797 trillion. The deposits that the FDIC has some responsibility for (up to $250,000 per depositor) add up to $241 billion. So we have this reasonably sensible system for winding down troubled banks, but when it comes to the most troubled big banking company in the country, said system only covers a fraction of the overall operation. Which leads to a couple of conclusions:
1. I get why the administration is so reluctant to take over Citi completely.
2. I don't get why we all (I'm including myself in this) thought it was okay to allow the creation and growth of gigantic financial companies for which we had absolutely no plan for winding down in case of trouble.
One more reason, I think, to ease up on the assumption that Geithner must be an idiot if he hasn't yet nationalized the banks.
U.S. officials don't have a template for winding down a company of Citigroup's size and complexity, which Federal Reserve Chairman Ben Bernanke made clear at a Senate hearing last week.
"I'd like to challenge the Congress to give us a framework, where we can resolve a multinational complicated financial conglomerate like Citigroup, like AIG, or others, if that became necessary," Mr. Bernanke told the Senate budget committee.
P.S. Apologies for the light posting today. I'm crashing on a long piece that should be out Friday. After that, it's all Stash, all the time. We can even do an open mic or something, though I'm not sure how that would work in practice. Maybe Congress can give us a framework for that, too.